Wednesday , January 27 2021

ECB: from 2021 onwards (conditionally?) For bank dividends. Mersh’s attention: some have too rosy a capital outlook

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Stopping the distribution of dividends The days of the shareholders in a bank in the eurozone, imposed in March by the ECB, will be numbered: the Vice-Chairman of the ECB Supervisory Board, Yves Mersch, hinted in an interview with the Financial Times. However, Mersh understood that stop freezing coupons it does not have to correspond to the central bank’s desire to do so.

Yves Mersch, ECB Vice President for Supervision warns of halting dividends for eurozone banks
FRANKFURT, GERMANY – SEPTEMBER 17: Yves Mersch, Member of the Executive Board of the European Central Bank, speaks during a press conference on new 100 and 200 euro banknotes at the ECB headquarters in Frankfurt, Germany on September 17, 2018. The new security features will make the new banknotes harder to counterfeit because they will be released on the market on March 28, 2019. (Photo by Abdulselam Durdak / Anadolu Agency / Getty Images)

Instead, the supervisor will also have to capitulate for legal reasons, and also to comply with what central banks such as the Bank of England and the Federal Reserve (the latter however, it never imposed a total cessation payment of coupons), prone to loosen restrictions taxes of the banking sector.
The result is that eurozone banks will be able to return to dividend payments starting next year. but with if: they will have to be able to convince supervisors that their balance sheets are strong enough to be able to counteract the economic and financial effects caused by the coronavirus pandemic.
Mersh did not hide any fears about this. The possible green light of the coupons “will depend on caution of internal models “on the banks, the caution taken in determining and the possible solid prospects for the capital trajectory,” he said.
The dividend ban was decided by the ECB Supervision in March, when the severity of the KOVID-19 pandemic was presented to the world. At the time, Frankfurt was advising eurozone banks to stop paying dividends and refunds. Reason: to free up capital, to channel it into loans for the benefit of the crippled economy from the crisis, therefore in favor of companies and families hungry for liquidity.
No dividends regarding 2019 and 2020, specified the supervisory body of the European Central Bank led by Andrea Enria, initially until October 1 this year. Recommendation immediately accepted by the institutes. And a recommendation that then expanded to the whole of 2020.

ECB, Mersh for Dividend: some banks the outlook is very rosy

In the run-up to his resignation from the ECB Executive Board, Mersch issued more than one warning to the oversight body itself, calling on the do not let your guard fall.
According to him, the supervision should actually be “very cautious“Allowing coupon payments to be returned to pre-pandemic levels.” This, he specified, “does not mean that we will have to maintain the absolute ban at all costs”, given that the ban also causes “legal uncertainty”, because “in our regulation we have only one instrument of taxation, which is based on case-by-case access
The point is that in the eurozone there are still banks that adopt “Many pink scenarios” in their internal models, which calculate their capital needs.
Sure, Mersch admitted, banks have entered a phase of a pandemic with “Stronger capital requirements” compared to those of the 2008 financial crisis.
But that would be it “A little surprising or specific” finance the payment of coupons to their shareholders by resorting to those relaxation of capital rules provided by regulators.
Some countries want Switzerland and Sweden have already indicated their readiness to allow banks to return to pay dividends starting in 2021, while la Federal Reserve and Bank of England they still have to make a decision.
As the Financial Times reminds, the decision on bank dividends by the ECB will be announced only after the announcement by the institution of the new assessments of the economy, which will be held on December 10.

FT Bank CEO: Frequent credit moves for UK to dividends

The head of a major eurozone bank, speaking on condition of anonymity, admitted that his bank began to tighten the taps on the loan, in order to preserve the capital and thus get the green light for dividend distribution by the supervisory authorities.
The CEO added that ECB risks creating “stigma” at the expense of any institution for which it decides to prevent the re-payment of coupons.
Carolyn Rodgers, Secretary-General of the Basel Supervisory Commission recently warned that it was too early for banks to “sing victory” over their response to the economic and health emergency of the coronavirus, stressing that the distribution of dividends should continue to be banned at least until the long-term economic and financial impact of the pandemic is clarified.

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